On expiry of the loan term you will still owe the lender the complete amount you borrowed.

Though interest only may seem like the cheapest borrowing option for you, it represents the highest risk to the bank. Consequently, the interest rate on interest only products is higher than on repayment products.

Additionally, you will need to pass three tests to obtain an interest only product:

Firstly, a strict wealth test.

Secondly, prove that you can afford to service a repayment loan of the same value.

Finally, convince the bank you will be able to repay your borrowing at term.

Let’s take an example

Bank A’s offer might look the most attractive with a headline rate of 2% made up of EURIBOR at 0.5% plus a first year spread of 1.5%. The catch is that after the first year the spread rises to 3% for the second and subsequent years giving an effective mortgage rate of 3.5% compared to the headline rate of 2%.

Bank B’s offer may look less attractive at 2.25% made up of EURIBOR at 0.5% plus a spread of 1.75%. The advantage is that for the rest of the mortgage’s lifetime the spread will remain at 1.75% giving a long term effective mortgage rate of 2.25%.

The net difference between the banks in this example would be approximately 1.25% per year after the first year.

Choose Bank B and you would save a very considerable amount over the life of the mortgage. To find out how much send us details of your mortgage needs.

The 100% French Mortgage Myth

A 100% loan is only available to borrowers who were French tax domiciled in the previous tax year.

The 100% products offered to non-residents are hybrid investment products.

They will require you to deposit at least 30% of the value of the mortgage in cash with the lender so reducing them to 70% LTV mortgages. You may also find that the deposit is for a fixed term equivalent to the loan term. In this case if you repay the mortgage early, you will still not be able to get your cash deposit back without penalty, if at all.